Private equity is eyeing investments in education markets which offer long
term sustainable growth

Private equity group Bridgepoint has agreed to buy a majority stake in pre-university education company Cambridge Education Group from Palamon Capital Partners for £185m.

London-based Palamon first bought into Cambridge Education Group (CEG) in 2007 when the group taught 460 students a year across two campuses in Cambridge and Canterbury.

Since then the business has grown to teach over 4,000 students from 95 countries in the UK, US and Netherlands As a result, CEG’s revenues have grown to an estimated £90m for the academic year 2013 and 2014.

Louis Elson, managing partner of Palamon, said that the private equity firm was now targeting acquisition opportunities in the vocational training space. “Degrees in creative arts should be kept to cultivate well informed and cultured citizens but as the government has come out publicly in favour of apprenticeships. There is a need for particular practical industries and for young people to learn a key skills in growing sectors”, Mr Elson said.

Bridgepoint said that the international student market offers long-term sustainable growth. The rapidly growing education export industry is estimated to be worth £17.5bn a year and is one of the UK’s largest export segment.

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The market benefits from the emerging middle classes in high growth economies that are able to fund a Western education. There is also an increasing demand for degrees from UK and US universities in emerging international labour markets where the reputation of Western academic institutions remains high

Chris Busby, Bridgepoint’s UK investment partner, said: “Our investment will provide the team with additional financial capacity and reach to accelerate its push further into international markets and realise CEG ambitions in a growing market.”

Bridgepoint said that the deal price represented a 11 times forecast earnings before interest, depreciation and tax, while Palamon said it meant a 14.6 times return on its investment and a capital gain of £141m. Mr Elson said that the sale proceeds would be returned to Palamon’s investors.

This is Palamon’s sixth exit from its €670m (€555.8m) 2006 fund, Palamon European Equity II, which to date has generated cash proceeds of €660m and a 3.6x return on investments.